CORN Well, as expected we were mixed today, although we had a pretty good run higher earlier in the day. The Dec '08 contract tested the $5.81 support number again only to bounce off of it and close at $5.85 for the day. I am looking at the weekly chart because it is Friday and I do see a sign that says we could be lower again next week so I am going to stick with my target of $5.65 in the Dec '08 futures. The daily chart shows some WARNING signs of slowing down the decline but there is no buy signal as of yet- this is why I will stick with $5.65 as my target for now until we close a day above a prior day's high.
I purchased a $6.10 Oct '08 call and sold a $6.70 Dec '08 call for 1/2 cent today to give me coverage above my short $6.10 Dec '08 call. Buying the Oct call was a lot cheaper than exiting my short $6.10 Dec call because of time and volatility. I also exited the short $4.30 Dec '08 put options that I sold when I first established my position. I exited these puts at $.02 which now opens up my downside.
I am not long-term bearish the market AT ALL! I think this area is a great place to extend feed coverage if you haven't already. I don't think I would go straight cash or futures without some downside protection because the price is still elevated from an historical perspective. Keep upside covered in feed corn at these levels as we should begin to hear more talk about frost next week, which will give us potential for more fireworks. The head and shoulders pattern that I have talked about for the past couple weeks is still in the process of forming and I will continue to keep an eye on it and update you. If the formation completes and we do actually get a buy signal it would produce a target of near $7.50 Dec '08. WE HAVE NOT COMPLETED THE FORMATION YET.
Dec '08 Meal Daily Chart.
MEAL Meal was ho-hum today, trading both sides of unchanged and ultimately closing lower. I really don't have much to add from yesterdays comments because we didn't have much action today. Today's trade range was relatively small at $7.00 or so, and the entire range was inside of yesterday's range- which is called an inside day. This means the market is rather indecisive right now and that is to be expected going into a long weekend. I bought a $360 Oct '08 call and sold a $400 Dec '08 call for $3.50 to get me through the weekend. This puts me long meal around $364.00 again which is still below the $367.00 that I got out of the other day. Stay protected in meal because if we do get a frost- look out!
Oct '08 Hogs Daily Chart.
HOGS We finally saw green numbers on the screen today (higher trade)! The market closed .10 lower in the Oct '08 contract and $.60 higher in the Dec '08. The market traded higher for most of the day but ran out of steam around 11:00 a.m. CST which is the same time the morning USDA cash hog reports are released. The cash market is still weak and cutout was only down $.25 today which also helped keep the futures supported.
I see a couple of different things in the charts that would suggest the Oct '08 contract MIGHT be trying to reverse and move higher. Today's action left a WARNING sign on the chart as well as a double bottom at $68.25 (assuming $68.25 remains our low) and if the market trades below $68.25 only to turn right around and trade higher we could see the market move higher based on a buy signal at $68.50 stop. The $68.25 level needs to be violated first before the buy signal would be good.
I implemented some call strategies today to protect some equity that has been gained in the short hedges we have in place. We still have downside price protection but now have locked in equity in our short hedge positions. We bought a $70.00 call, sold a $75.00 calls and $64.00 put for around $1.00 cwt. This means we have downside hedge coverage to $64.00 and we will not give back hedge equity from $71.00 - $75.00 cwt. I will re-adjust these positions if I see strong signs of a potential move higher or lower next week. I am beginning to think we are bottoming the futures from a technical perspective but I need more data to complete my thought. I used options instead of lifting hedges because I still want to have downward price protection in place. I am expecting a rebound in hog futures next week with a potential target of $73.57.
I see signs of the U.S. Dollar index running out of steam to the upside and may be due for a breather. We had a warning signal last week and now this week too on the weekly charts. I look for the Dollar to struggle next week. The warning signals are that, WARNING's, they ARE NOT sell signals.
Please have a safe and happy Labor Day weekend! I will blog again on Tuesday.
USDA ESTIMATED PORK CARCASS CUTOUT
Based on FOB Omaha carlot pork prices and industry yields.
Calculations for a 200 lb Pork Carcass
53-54% lean, 0.65"-0.80" backfat at last rib
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Total Today's Primal Cutout Values
Date Loads Carcass Loin Butt Pic Rib Ham Belly
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08/29 39.0 80.26 102.48 86.45 66.35 96.02 74.60 76.99
Change : -0.25 1.00 -0.47 -0.07 -0.85 -0.09 -2.44
-----------------------------------------------------------------------National Direct Hog Price Comparison
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: National : Iowa : Western : Eastern
: : Minnesota : Cornbelt : Cornbelt
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Base Price is the price from which no discounts are subtracted and
no premiums are added.
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BARROWS & GILTS : 1.60 lwr : 1.96 lwr : 2.22 lwr : 1.55 lwr
Negotiated : : : :
CARCASS BASIS : 66.50-74.00 : 66.50-71.62 : 66.50-71.62 : 68.00-74.00
185 lb Base Hog : wtd avg : wtd avg : wtd avg : wtd avg
Plant Delivered : 69.80 : 68.85 : 68.86 : 70.92
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Head Count : 20,506 : 7,001 : 10,996 : 9,325
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Hurley & Associates believes positions are unique to each person’s risk bearing ability; marketing strategy; and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. NFA Rules require us to advise you that past performance is not indicative of future results, and there is no guarantee that your trading experience will be similar to the past performance.
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